Perspectives: Listed REITs - Fall edition

September 16, 2024
Kelly Rush, CFA
Chief Executive Officer, Public Real Assets & Chief Investment Officer, Real Estate Securities
Todd Kellenberger, CFA
Client Portfolio Manager, Real Estate Securities
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AT-A-GLANCE

  • Public REITs have benefited from a great rotation within equity markets since the end of June, with U.S. REITs returning 13.2% vs. S&P 500 3.7%.
  • Clear evidence of a growth slowdown and moderating inflation has increased the market’s conviction Fed rate cuts are imminent.
  • REITs in sectors such as senior housing, single-family rental, cold warehouse storage, and wireless towers are a compelling opportunity with visible, defensive cash flows that offer attractive growth under a variety of economic outcomes.
  • Despite recent outperformance, REITs remain historically cheap relative to equities.
  • Public REIT valuations remain attractive versus private real estate funds.

REITs should do well under our expected macro-outcomes of a soft landing or mild recession

There are signs that steep central bank rate hikes are starting to slow the economy. A cooling in labor markets is unmistakable with slower hiring, but layoffs remain tame. This suggests labor markets will weaken but unemployment might not increase significantly.

Clear evidence of a growth slowdown and moderating inflation has increased the market’s conviction the Fed will keep cutting rates. Investor rotation into longer duration, resilient cash flows would be a tailwind for REITs relative to other equities.

Property sectors with lower economic sensitivity and resilient, structurally-driven demand should outperform amidst the prospect of an economic slowdown. For more of our thoughts on the listed REITs preferences, read our full perspective.

Real estate
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Risk Considerations
Investing involves risk, including possible loss of Principal. Past Performance does not guarantee future return. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed. Potential investors should be aware of the risks inherent to owning and investing in real estate, including value fluctuations, capital market pricing volatility, liquidity risks, leverage, credit risk, occupancy risk and legal risk. All these risks can lead to a decline in the value of the real estate, a decline in the income produced by the real estate and declines in the value or total loss in value of securities derived from investments in real estate.

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